Market Update November 27

US durable goods orders rose-more-than-expected in October with an increase of 0.6% reported. The reading was stronger than the upwardly-revised 0.9% decline of September and expectations for a further contraction of 0.6%. While the headline figure was strong the rest of the report was unequivocally-weak with core orders, that which excludes lumpy transportation items, falling 0.9% following a 0.2% gain in September. The reading was well below expectations for an increase of 0.5% and was the sharpest month-on-month contraction since December 2013. Adding to the disappointment capital goods shipments ex-military and aircraft, something that is watched closely given its implications for GDP, slipped 0.4% following a similar gain in September.

US personal incomes and consumption growth missed to the downside in October with gains of 0.2% apiece. Incomes had been expected to grow 0.4% while consumption, having been revised to flat in September from an initial estimate of -0.2%, also missed forecasts  for a gain of 0.3%. Adding to the dour October report core PCE inflation, something that is watched closely by the FOMC, rose by 0.1% with the annual rate remaining unchanged at +1.4%.

US pending home sales fell unexpectedly in October with a decline of 1.1% reported. The reading was below the upwardly-revised 0.6% gain of September and expectations for an increase of 0.5% and was the largest monthly decline recorded since June. While sales of existing homes slid, those for new homes rose with an increase of 0.7% reported. The gain took total sales on an annualised basis to 458k, the highest level see since March.

US initial jobless claims surged last week with an increase to 313k reported. The figure, the largest increase seen since early August, was higher than the 292k rate of the previous corresponding week and expectations for a decline to 290k and left new claims at levels last seen in early September this year. While no special factors impacted the data the 4-week series average, a better overall gauge of labour market strength in my opinion, rose to 294k from 287.75k, the highest level seen since late September.

Manufacturing activity in Chicago and surrounds improved at a slower pace in November with the ISM’s Chicago PMI gauge falling to 60.8. The figure was below the 66.2 print of October and expectations for an increase to 63.0 with new orders, off some 11.7 points to 61.9, largely responsible for the larger-than-expected headline drop.

US consumer confidence rose less-than-first thought in November with the final read of the University of Michigan-Thomson Reuters survey falling to 88.8. While higher than the 86.9 level of October the figure was below the initial estimate of 89.4 released earlier in the month. Downward revisions to both current conditions and expectations, 0.3ppts and 0.7ppts respectively, were the chief catalyst behind the fall in the headline index.

US mortgage approvals fell heavily last week with the MBA mortgage market index sliding 4.3%. Refinancing and new applications declined 3.5% and 4.8% respectively with the falls coming despite the average 30-year mortgage rate dipping 3bps to 4.15%.

UK Q3 GDP was confirmed at 0.7% overnight, the same level as the preliminary estimate, with the annual rate remaining steady at 3.0%. Overall a small upward revision to services output was enough to offset a 0.3% downward revision to industrial output.

UK retail turnover grew at a fractionally slower pace in November with the CBI distributive trades balance slipping to +27. The reading was lower than the +31 level of October and expectations for a decline to +30 with 44% of respondents reporting an increase in sales from a year earlier compared to 17% who saw declines.

French consumer confidence ticked higher in November with INSEE reporting an increase to 87. The reading, the highest since March, was stronger than both the 85 level of October and expectations for an increase to 86. While the French were slightly more optimistic it was a different story to the south with Italian consumer confidence slipping unexpectedly. ISTAT’s index fell to 100.2, below the 101.3 figure of October and forecasts for an increase to 101.6.

German import prices fell 0.3% in October, below the 0.3% increase of September but above the 0.5% decline expected, with the annual decline improving to -1.2% from -1.6% seen previously.


The Day Ahead (AEDT)

US markets will be closed this evening for the Thanksgiving Holiday – Enjoy!

The ASX 200 looks set to open flat this morning with SPI futures pointing to no change on the open. While you could be forgiven for thinking the market will give back some ground today – it did outperform yesterday despite falling commodity prices and a lacklustre lead from Wall Street, with options expiry upon us and liquidity likely to be thin, it’s a lottery as to what direction the index will take today. From a macro perspective, like yesterday, should the Q3 capex disappoint it will only help to drive the yield trade given implications for domestic monetary policy settings ahead.

Having fallen as low as .8481 in early European trade, largely as a result of stop-chasing and selling in AUDJPY, the AUDUSD has made a spectacular recovery overnight with weak US economic data and thin trading conditions helping to push the pair as high as .8555 late in New York trade. Today all attention will be on the Q3 capex report with the fourth estimate of 2014/15 spend, along with the plant, equipment and machinery figure, likely to set the tone. Should both print weak expect the Aussie to come under renewed selling pressure. Conversely, should both come in above expectations expect a far greater upside move given positioning and sentiment at present. As is often the case should they come in mixed go with the 2014/15 capex estimate, it’s generally the indicator that Aussie will take. Support at .8540, .8510, .8500 and .8481, resistance at .8565 and .8600.

Australian Q3 capital expenditures figures will be released at 11.30am this morning. After bouncing 1.1% in Q2 economists are looking for a decline of 1.5% in Q3. Given it directly feeds into GDP calculations expect the plant, equipment and machinery figure, along with the 4th estimate of 2014/15 capex spend, to be the most influential figures on the market. The former is expected to decline 1.0% following a 0.9% drop in Q2 while the 3rd estimate of 2014/15 spend was $145.2b. Any significant undershoot on these figures, particularly together, will have ramifications for the outlook of domestic interest rates. Before the capex report arrives markets will also have to digest the latest new home sales report form the HIA at 11am along with New Zealand trade figures for October at 8.45am.

Data releases this evening include CPI from Germany and Spain, consumer sentiment from the Eurozone and Germany, Eurozone monetary growth, German unemployment, Italian business confidence along with Spanish Q3 GDP. Elsewhere OPEC nations meet in Vienna. Will they cut output in light of recent price declines or will the status quo remain? Either way their decision will create volatility one-way-or-another.


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